By David Hargreaves
The Reserve Bank says it's not concerned that the housing policies of the new Government will start to push house prices down and says that's not why it has decided to relax the rules around high loan to value lending.
At the media conference after releasing the RBNZ's latest Financial Stability Report, the Acting Governor Grant Spencer was asked if he was concerned the new housing policies of the Government would depress house prices.
The new policies include extending the 'Bright line test' involving taxing potential capital gains on investment houses out to five years, restrictions on foreign buyers, ring-fencing of investor losses and the Kiwi Build programme, which is aimed at providing 10,000 new affordable houses a year.
"Not really. We don't see a collapse of house prices as a particularly high risk so we are not acting because we are concerned the thing's about to fall off the edge.
"...But obviously the Government policies give us....reinforce the [LVR] decision...and give us comfort that there are other policies and factors that are going to keep the house market risks contained."
Asked further whether the move to relax the LVR limits was only about financial stability and not about breathing life into housing market, Spencer said: "This is not an attempt to bolster the housing market or to move it up.
"It's really just a follow-through on our commitment that the LVR policy was a temporary measure not a permanent measure in response to some very extreme risk and pressure in the housing market that we have seen over recent years.
"...So, things have come off. Things are much more moderate and so we need to look at gradually removing this instrument."
The current rules include different criteria for housing investors and owner-occupiers.
Housing investors have to find 40% deposits to buy houses. This will be relaxed to 35% on January 1.
As far as owner-occupiers are concerned, the banks are rationed on what they can lend them in terms of high LVR lending. The accepted definition of 'high' LVR lending is when the buyer has a deposit for less than 20% for the property they are buying.
Under the terms of the 'speed limit' that currently applies to banks they are rationed to just 10% of the new new mortgage monies they advance being for this 'high' LVR lending. On January 1 this will be eased back to 15%.
The real estate industry has been clamouring to have the LVR limits removed for first home buyers, but the RBNZ does not differentiate between the FHBs and repeat buyers with the LVR restrictions.
Asked what the advice would be to first home buyers after the rules are relaxed, Spencer said: "I think we would say continue to be cautious. This market has moderated. We expect it to continue to moderate.
"This gives the banks a little bit more latitude in the lending decisions but it's really only a change at the margin. We don't expect it to have a significant effect at all."
While the new limit will theoretically allow banks to advance up to 15% of their new lending on high LVR mortgages, the reality is that what they advance will likely be some way below that.
Keeping in compliance with the LVR rules was and is a condition of registration for the banks - and they have been loath to risk inadvertently breaching them.
According to the Reserve Bank's monthly collated LVR figures the banks have been keeping well below the 10% LVR limit - after exemptions are included. The pre-exemptions monthly figures are at around 10%, but after exemptions the amount of high LVR lending in the past month was just 5.9%.
Separately the RBNZ has over the past year been endeavouring to get debt-to-income ratios included in its 'macro-prudential toolkit' though it has stressed it wouldn't use them at the moment.
Spencer said the central bank still thought a "debt servicing instrument" was appropriate for the macro-prudential toolkit.
"But what we have agreed with the Government is to postpone further consideration of DTIs or that type of instrument for the macro-prudential review that Treasury and ourselves will be undertaking over the next year and elements of this will also come into the Government's review of the Reserve Bank Act - the second phase of that review - the first phase being the focus on monetary policy.
"We still think it is relevant to have in the toolkit. We certainly don't think it is relevant to be applying now given that the housing market has moderated substantially...but...consideration of that has been deferred somewhat."
In terms of bank lending policies, Spencer said the RBNZ felt that in recent times bank credit standards have "been reasonably tight" and that is going to continue.
"...We still think they will be applying a pretty tough approach."
The RBNZ has not set out a schedule for total removal of LVRs. "Because the removal is conditional on things remaining stable and risks remaining contained. So, we will review it from time to time - our internal reporting cycle tends to be quarterly - and make further adjustments as appropriate. "